Pub Date : 2025-12-25DOI: 10.1016/j.ejpoleco.2025.102796
Yacov Tsur
Term limits exert two opposing effects on political corruption: they increase the incidence (frequency) while reducing the magnitude (average cost) of corrupt acts. Higher incidence arises from weakened electoral accountability during lame-duck and penultimate terms. Lower magnitude results from shorter tenures that impede the formation of extensive corrupt networks. Using cross-state variation in U.S. gubernatorial term-limit regimes, the analysis reveals that penultimate-term effects can raise the incidence of corruption by 28 %, yet concurrent reductions in magnitude more than offset this increase. Building on the well-established negative association between economic growth and corruption, the analysis employs observed state-level growth as a proxy for the aggregate impact of corruption. The findings indicate that stricter term limits are associated with lower overall corruption, underscoring the potential role of term limits as an institutional safeguard against political corruption.
{"title":"Term limits and corruption: Evidence from U.S. states","authors":"Yacov Tsur","doi":"10.1016/j.ejpoleco.2025.102796","DOIUrl":"10.1016/j.ejpoleco.2025.102796","url":null,"abstract":"<div><div>Term limits exert two opposing effects on political corruption: they increase the incidence (frequency) while reducing the magnitude (average cost) of corrupt acts. Higher incidence arises from weakened electoral accountability during lame-duck and penultimate terms. Lower magnitude results from shorter tenures that impede the formation of extensive corrupt networks. Using cross-state variation in U.S. gubernatorial term-limit regimes, the analysis reveals that penultimate-term effects can raise the incidence of corruption by 28 %, yet concurrent reductions in magnitude more than offset this increase. Building on the well-established negative association between economic growth and corruption, the analysis employs observed state-level growth as a proxy for the aggregate impact of corruption. The findings indicate that stricter term limits are associated with lower overall corruption, underscoring the potential role of term limits as an institutional safeguard against political corruption.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"93 ","pages":"Article 102796"},"PeriodicalIF":2.4,"publicationDate":"2025-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145980312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-22DOI: 10.1016/j.ejpoleco.2025.102795
Jiali Shen
It is widely assumed that strong state capacity improves public goods provision. Yet, most existing studies treat the state as an autonomous provider, overlooking how its effects depend on societal context. This study examines how social fragmentation conditions the relationship between state capacity and public goods provision, drawing on original data from rural Japan. The findings reveal that high state capacity enhances provision only where social fragmentation is high; in more cohesive regions, strong state intervention may disrupt informal cooperation, reducing effectiveness. This non-linear effect is robust across multiple checks and is mediated through the Japan Agricultural Cooperatives. These results highlight the conditional nature of state capacity and the importance of state–society relations in shaping public goods outcomes. The study contributes to broader debates on governance and development by demonstrating that state capacity does not operate in isolation, and its effectiveness varies with the structure of social relations.
{"title":"When does state capacity Work? Social fragmentation and public goods provision in rural Japan","authors":"Jiali Shen","doi":"10.1016/j.ejpoleco.2025.102795","DOIUrl":"10.1016/j.ejpoleco.2025.102795","url":null,"abstract":"<div><div>It is widely assumed that strong state capacity improves public goods provision. Yet, most existing studies treat the state as an autonomous provider, overlooking how its effects depend on societal context. This study examines how social fragmentation conditions the relationship between state capacity and public goods provision, drawing on original data from rural Japan. The findings reveal that high state capacity enhances provision only where social fragmentation is high; in more cohesive regions, strong state intervention may disrupt informal cooperation, reducing effectiveness. This non-linear effect is robust across multiple checks and is mediated through the Japan Agricultural Cooperatives. These results highlight the conditional nature of state capacity and the importance of state–society relations in shaping public goods outcomes. The study contributes to broader debates on governance and development by demonstrating that state capacity does not operate in isolation, and its effectiveness varies with the structure of social relations.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"91 ","pages":"Article 102795"},"PeriodicalIF":2.4,"publicationDate":"2025-12-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145841333","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-16DOI: 10.1016/j.ejpoleco.2025.102775
Sebastian Blesse , Luisa Dörr , Florian Dorn , Max Lay
Fiscal rules are a frequent policy measure to restrict deficit-taking among incumbent politicians. In times of increased and sustained investment needs to mitigate the consequences of climate change, and to promote the digital and structural transformation, fiscal rules have become subject to criticism for undermining public investments. We review 36 existing empirical studies examining the effect of fiscal rules on public investments. We also discuss whether more public investments typically come at the cost of higher deficits and whether the effect on public investments differs between rigid and more flexible fiscal rules. Overall, we do not find majoritarian evidence for a negative effect of fiscal rules on overall public investments. Among the papers finding a (significant) effect of fiscal rules on public investments, the number of those that estimate a negative relationship, however, surpass the ones finding a positive relationship. Rigid fiscal rules seem to deter public investments as compared to more flexible and investment-friendly rules which, by contrast, rather increase public investments. Existing evidence does not suggest that public investments come at the cost of higher public deficits in a majority of studies (except in case of flexible fiscal rules). The design of fiscal rules appears to be crucial for higher public investments.
{"title":"Do fiscal rules undermine public investments? A review of empirical evidence","authors":"Sebastian Blesse , Luisa Dörr , Florian Dorn , Max Lay","doi":"10.1016/j.ejpoleco.2025.102775","DOIUrl":"10.1016/j.ejpoleco.2025.102775","url":null,"abstract":"<div><div>Fiscal rules are a frequent policy measure to restrict deficit-taking among incumbent politicians. In times of increased and sustained investment needs to mitigate the consequences of climate change, and to promote the digital and structural transformation, fiscal rules have become subject to criticism for undermining public investments. We review 36 existing empirical studies examining the effect of fiscal rules on public investments. We also discuss whether more public investments typically come at the cost of higher deficits and whether the effect on public investments differs between rigid and more flexible fiscal rules. Overall, we do not find majoritarian evidence for a negative effect of fiscal rules on overall public investments. Among the papers finding a (significant) effect of fiscal rules on public investments, the number of those that estimate a negative relationship, however, surpass the ones finding a positive relationship. Rigid fiscal rules seem to deter public investments as compared to more flexible and investment-friendly rules which, by contrast, rather increase public investments. Existing evidence does not suggest that public investments come at the cost of higher public deficits in a majority of studies (except in case of flexible fiscal rules). The design of fiscal rules appears to be crucial for higher public investments.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"91 ","pages":"Article 102775"},"PeriodicalIF":2.4,"publicationDate":"2025-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145791952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-11DOI: 10.1016/j.ejpoleco.2025.102792
Yang Pan , Xihao Wu
This study investigates whether and how the tax centralization reform (TCR) affects the role of political connections in corporate tax avoidance. Using China's consolidation of the State Tax Administration (STA) and Local Tax Bureaus (LTBs) as a quasi-natural experiment, we find that TCR significantly diminishes the tax-reduction advantages traditionally afforded by political connections. More specifically, our analysis shows that the reform weakens the influence of local government political ties on corporate tax avoidance strategies. Heterogeneity analysis further reveals that the moderating effect of TCR is more pronounced in regions characterized by greater government intervention. Additional tests reveal that TCR also reduces the impact of political connections on firms' tax deviation and tax risk. Collectively, these findings highlight the institutional advantages of tax centralization in curbing politically driven tax avoidance, offering important implications for emerging markets seeking to enhance tax enforcement and governance.
{"title":"Tax centralization, political connections, and corporate tax avoidance","authors":"Yang Pan , Xihao Wu","doi":"10.1016/j.ejpoleco.2025.102792","DOIUrl":"10.1016/j.ejpoleco.2025.102792","url":null,"abstract":"<div><div>This study investigates whether and how the tax centralization reform (TCR) affects the role of political connections in corporate tax avoidance. Using China's consolidation of the State Tax Administration (STA) and Local Tax Bureaus (LTBs) as a quasi-natural experiment, we find that TCR significantly diminishes the tax-reduction advantages traditionally afforded by political connections. More specifically, our analysis shows that the reform weakens the influence of local government political ties on corporate tax avoidance strategies. Heterogeneity analysis further reveals that the moderating effect of TCR is more pronounced in regions characterized by greater government intervention. Additional tests reveal that TCR also reduces the impact of political connections on firms' tax deviation and tax risk. Collectively, these findings highlight the institutional advantages of tax centralization in curbing politically driven tax avoidance, offering important implications for emerging markets seeking to enhance tax enforcement and governance.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"91 ","pages":"Article 102792"},"PeriodicalIF":2.4,"publicationDate":"2025-12-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145841334","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-09DOI: 10.1016/j.ejpoleco.2025.102784
Jorge M. Uribe , Helena Chuliá
We empirically examine the potential trade-off between reducing vulnerability to climate change and maintaining fiscal stability. Our findings indicate that governance, as a measure of institutional quality, is the key determinant of both fiscal stability and climate change preparedness. Thus, higher levels of institutional quality result in increased preparedness for climate hazards and a lower likelihood of fiscal crises. However, our survival analysis also highlights that fiscal stability is contingent upon the interest paid on debt, rather than solely the overall debt burden. Considering these findings, international efforts to address the consequences of climate change should aim to maintain relatively constant interest payments on debt among emerging and low-income countries during their ecological transition. Our results further suggest that enhancing human habitat conditions, while considering the role of governance, is the most effective means of simultaneously reducing the likelihood of a fiscal crisis and increasing preparedness for climate hazards.
{"title":"Assessing the joint risks of fiscal crises and climate change","authors":"Jorge M. Uribe , Helena Chuliá","doi":"10.1016/j.ejpoleco.2025.102784","DOIUrl":"10.1016/j.ejpoleco.2025.102784","url":null,"abstract":"<div><div>We empirically examine the potential trade-off between reducing vulnerability to climate change and maintaining fiscal stability. Our findings indicate that governance, as a measure of institutional quality, is the key determinant of both fiscal stability and climate change preparedness. Thus, higher levels of institutional quality result in increased preparedness for climate hazards and a lower likelihood of fiscal crises. However, our survival analysis also highlights that fiscal stability is contingent upon the interest paid on debt, rather than solely the overall debt burden. Considering these findings, international efforts to address the consequences of climate change should aim to maintain relatively constant interest payments on debt among emerging and low-income countries during their ecological transition. Our results further suggest that enhancing human habitat conditions, while considering the role of governance, is the most effective means of simultaneously reducing the likelihood of a fiscal crisis and increasing preparedness for climate hazards.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"91 ","pages":"Article 102784"},"PeriodicalIF":2.4,"publicationDate":"2025-12-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145705514","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.ejpoleco.2024.102510
Pedro Bação , Joshua Duarte , Melissa Pereira , Marta Simões
This paper studies the relationship between inequality and public social spending for an overall sample of 28 OECD countries spanning 1997 to 2017. We add to the literature by dissecting social expenditure according to nine programs and allowing for the existence of a non-linear relation in the context of a dynamic panel threshold model. The analysis reveals a positive contribution of old-age pensions to the Gini index of disposable income distribution, the most often used indicator of inequality, supporting the need to rethink old-age pension systems in this group of countries. The results for the other social expenditure components vary with the inequality measure used and country groups under analysis, highlighting the problems that may be associated with panel data even when a set of countries with many characteristics in common is used. Our results also stress the relevance of accommodating nonlinearities when explaining inequality, paving the way to a better understanding of its behaviour.
{"title":"Social expenditure composition and inequality: A dynamic panel threshold analysis for OECD countries","authors":"Pedro Bação , Joshua Duarte , Melissa Pereira , Marta Simões","doi":"10.1016/j.ejpoleco.2024.102510","DOIUrl":"10.1016/j.ejpoleco.2024.102510","url":null,"abstract":"<div><div>This paper studies the relationship between inequality and public social spending for an overall sample of 28 OECD countries spanning 1997 to 2017. We add to the literature by dissecting social expenditure according to nine programs and allowing for the existence of a non-linear relation in the context of a dynamic panel threshold model. The analysis reveals a positive contribution of old-age pensions to the Gini index of disposable income distribution, the most often used indicator of inequality, supporting the need to rethink old-age pension systems in this group of countries. The results for the other social expenditure components vary with the inequality measure used and country groups under analysis, highlighting the problems that may be associated with panel data even when a set of countries with many characteristics in common is used. Our results also stress the relevance of accommodating nonlinearities when explaining inequality, paving the way to a better understanding of its behaviour.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"90 ","pages":"Article 102510"},"PeriodicalIF":2.4,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140004172","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.ejpoleco.2023.102458
Benjamin Owusu, Bettina Bökemeier, Alfred Greiner
This paper empirically studies non-linearities in debt sustainability analysis by resorting to the modern estimation technique of panel smooth transition regression (PSTR). We assess euro area debt sustainability by analysing the reaction of the primary balance to changes in public debt, relative to GDP respectively, in annual frequency from 2000–2019 in a panel framework. The PSTR allows to estimate the existence of a threshold in the behaviour of the reaction function, refrains from the country-wise perspective and applies a regime-switching model to detect non-linearities. Data is segregated into different regimes endogenously via a logistic regression. Our results show that there are two different regimes in the euro area: a high and a low debt regime. The estimated reaction coefficient for the low debt regime is statistically insignificant, whereas it is positive and statistically significant for the high debt regime. Further, for a sub-sample of highly indebted economies we find a statistically significant negative (positive) reaction coefficient for the low (high) debt regime.
{"title":"Regime-based debt sustainability analysis: Evidence from euro area economies","authors":"Benjamin Owusu, Bettina Bökemeier, Alfred Greiner","doi":"10.1016/j.ejpoleco.2023.102458","DOIUrl":"10.1016/j.ejpoleco.2023.102458","url":null,"abstract":"<div><div>This paper empirically studies non-linearities in debt sustainability analysis by resorting to the modern estimation technique of panel smooth transition regression (PSTR). We assess euro area debt sustainability by analysing the reaction of the primary balance to changes in public debt, relative to GDP respectively, in annual frequency from 2000–2019 in a panel framework. The PSTR allows to estimate the existence of a threshold in the behaviour of the reaction function, refrains from the country-wise perspective and applies a regime-switching model to detect non-linearities. Data is segregated into different regimes endogenously via a logistic regression. Our results show that there are two different regimes in the euro area: a high and a low debt regime. The estimated reaction coefficient for the low debt regime is statistically insignificant, whereas it is positive and statistically significant for the high debt regime. Further, for a sub-sample of highly indebted economies we find a statistically significant negative (positive) reaction coefficient for the low (high) debt regime.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"90 ","pages":"Article 102458"},"PeriodicalIF":2.4,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49245524","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.ejpoleco.2023.102435
Giovanni Carnazza , Paolo Liberati , Agnese Sacchi
When using discretionary fiscal policies in the countries belonging to the European Union, any change affecting the current fiscal stance must run into the boundary designed by fiscal rules. This would imply that discretionary fiscal policies - being mainly driven by the need to comply with fiscal rules - might be scarcely affected by politics and the political characteristics of a country. We empirically test this hypothesis on a sample of 19 European countries observed over years 1995–2019. Using different econometric techniques and alternative specifications, we find a strong and robust fiscal pro-cyclicality. More importantly, the pro-cyclicality of the fiscal policy is not significantly affected neither by the behaviour of macroeconomic fundamentals nor by institutional and political variables. From a policy viewpoint, it seems that the mechanisms introduced to guarantee fiscal sustainability in the euro area can overcome all possible political influences on both the size and the sign of implementable fiscal policies. This would suggest that politics does not matter to shape the public budget, at least not so much as the fiscal rules.
{"title":"Does politics matter? A comparative assessment of discretionary fiscal policies in the euro area","authors":"Giovanni Carnazza , Paolo Liberati , Agnese Sacchi","doi":"10.1016/j.ejpoleco.2023.102435","DOIUrl":"10.1016/j.ejpoleco.2023.102435","url":null,"abstract":"<div><div>When using discretionary fiscal policies in the countries belonging to the European Union, any change affecting the current fiscal stance must run into the boundary designed by fiscal rules. This would imply that discretionary fiscal policies - being mainly driven by the need to comply with fiscal rules - might be scarcely affected by politics and the political characteristics of a country. We empirically test this hypothesis on a sample of 19 European countries observed over years 1995–2019. Using different econometric techniques and alternative specifications, we find a strong and robust fiscal pro-cyclicality. More importantly, the pro-cyclicality of the fiscal policy is not significantly affected neither by the behaviour of macroeconomic fundamentals nor by institutional and political variables. From a policy viewpoint, it seems that the mechanisms introduced to guarantee fiscal sustainability in the euro area can overcome all possible political influences on both the size and the sign of implementable fiscal policies. This would suggest that politics does not matter to shape the public budget, at least not so much as the fiscal rules.</div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"90 ","pages":"Article 102435"},"PeriodicalIF":2.4,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43935340","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.ejpoleco.2024.102560
Cinzia Alcidi , Paolo D'Imperio , Gilles Thirion
Previous literature on the channels of risk sharing in the EMU suggests that consumption smoothing through net savings is the dominant channel. This research aims to provide a deeper understanding and a more accurate interpretation of the working of the savings channel by exploring its international and public dimension. To do so, we quantify the shock absorption from external versus domestic mechanisms, and from the government and private sectors. We then measure consumption smoothing patterns across key time periods, episodes of financial stress, economic upturns and downturns, fiscal policy stances, and investigate possible heterogeneity between core and periphery countries.
{"title":"Shock absorption via savings in the EMU: The role of international and public mechanisms","authors":"Cinzia Alcidi , Paolo D'Imperio , Gilles Thirion","doi":"10.1016/j.ejpoleco.2024.102560","DOIUrl":"10.1016/j.ejpoleco.2024.102560","url":null,"abstract":"<div><div>Previous literature on the channels of risk sharing in the EMU<span> suggests that consumption smoothing through net savings is the dominant channel. This research aims to provide a deeper understanding and a more accurate interpretation of the working of the savings channel by exploring its international and public dimension. To do so, we quantify the shock absorption from external versus domestic mechanisms, and from the government and private sectors. We then measure consumption smoothing patterns across key time periods, episodes of financial stress, economic upturns and downturns, fiscal policy stances, and investigate possible heterogeneity between core and periphery countries.</span></div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"90 ","pages":"Article 102560"},"PeriodicalIF":2.4,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141410522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-12-01DOI: 10.1016/j.ejpoleco.2023.102457
Amélie Barbier-Gauchard, Thierry Betti, Théo Metz
We develop a behavioural macroeconomic model to investigate the question of fiscal policy credibility and how agents’ expectations about the output gap, public debt, expenditure and taxation affect the fiscal multiplier and debt stability. To do this, we model heterogeneous expectation-formation processes in a market populated by fundamentalists and chartists, agents being able to switch from one rule to another depending on the effective outcome in each period. This model produces waves of optimism and pessimism along the business cycle. We show in this article that when agents are optimistic about the future output gap and public debt, the fiscal multiplier tends to be larger whatever the nature of the fiscal shock. It also appears that fiscal expansion has less of a negative effect on public debt. Furthermore, agents’ expectations about public debt and the fiscal credibility of the government affect indicators of government performance (the fiscal multiplier and public debt stability).
{"title":"Fiscal multipliers, public debt anchor and government credibility in a behavioural macroeconomic model","authors":"Amélie Barbier-Gauchard, Thierry Betti, Théo Metz","doi":"10.1016/j.ejpoleco.2023.102457","DOIUrl":"10.1016/j.ejpoleco.2023.102457","url":null,"abstract":"<div><div><span>We develop a behavioural macroeconomic model to investigate the question of fiscal policy credibility and how agents’ expectations about the output gap, public debt, expenditure and taxation affect the fiscal multiplier and debt stability. To do this, we model heterogeneous expectation-formation processes in a market populated by </span><em>fundamentalists</em> and <em>chartists</em><span><span>, agents being able to switch from one rule to another depending on the effective outcome in each period. This model produces waves of optimism and pessimism along the business cycle. We show in this article that when agents are optimistic about the future output gap and public debt, the fiscal multiplier tends to be larger whatever the nature of the fiscal shock. It also appears that fiscal expansion has less of a negative effect on public debt. Furthermore, agents’ expectations about public debt and the fiscal credibility of the government affect indicators </span>of government performance (the fiscal multiplier and public debt stability).</span></div></div>","PeriodicalId":51439,"journal":{"name":"European Journal of Political Economy","volume":"90 ","pages":"Article 102457"},"PeriodicalIF":2.4,"publicationDate":"2025-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45377485","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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